As the world’s largest economy, America thought it held all the cards. China was hurting because of the US ban on the export of artificial intelligence (AI) chips made by Nvidia Corp, as well as Electronic Design Automation (EDA) software for chips made by firms like Synopsys and Cadence Design Systems. Without the chips and software, Chinese tech manufacturing would hit a brick wall. It turns out that the US was hurting, too. China’s export ban on critical rare earth minerals and metals, as well as magnets made from them, had hit the US auto industry as well as a range of sectors, from defence to technology, hard.
For four months now, US President Donald Trump has used the threat of high tariffs to wring concessions from countries that trade with America. His aim is to bring back manufacturing to the US to help his working-class base, raise more revenues for his tax cuts, as well as try to pare the country’s burgeoning fiscal deficit. The US President also wants to use tariffs to gain a strategic advantage against key rival, China.
In April, Trump dramatically boosted tariffs on goods from China to a whopping 145%. Until Jan 2017, under former president Barack Obama, the average tariff on Chinese goods was about 2.7%. Trump was trying to tell Chinese President Xi Jinping: Talk to us before tariffs start to really hurt. By early May, US-China trade had effectively come to a standstill and the two sides needed to cut a deal fast.
